There has been a lot of research on the interesting situation of the silver market in recent years. Nevertheless, we could not find very much about the outstanding dynamics of the silver supply (production) situation.

In our search for main drivers of silver prices we could find to our own astonishment that zinc and lead have a very strong inverse relationship with silver prices.

This sounds odd as it is not obvious, why zinc and lead should be main drivers for the silver market. Nevertheless, given the fact that most of the silver is actually supplied as a by - product from zinc and lead production, the situation becomes much clearer. Up to 50 % of silver supply derives from this source. Industrias Peņoles, the number one produces more than 70 mill oz of silver per year, Pasminco, the number three, which just recently went into receivership, produces over 30 mill oz per year.

If zinc and lead prices go down, producers have to stop or at least curtail production. This is essential the case when zinc prices fall below cash or even below variable costs. Producers simply drain on their cash resources if they do not stop production. Lower zinc production then imply also lower silver production.

What makes the situation even more appealing is the additional dynamics of this process. As long as zinc prices during a declining trend are higher than cash costs, producers have to ramp up production to a maximum to get more cash for debt and other obligations. The lower the prices, the higher the production in order to get at least some cash out from operation. As silver production increases in tandem with zinc production a declining trend signals the market an ever increasing supply of zinc and silver, thus depressing prices even more. This is exactly why many commercials in the market place believe silver is oversupplied. This explains the high short positions of commercials in the silver market.

Nevertheless, as prices decline further and further they will eventually go below cash and even below variable costs, as it is the case now. Zinc, lead and also silver are on record lows in real terms.

As then zinc producers have to stop production, the market supply goes from maximum output to virtually zero in a very short time. This does not affect the zinc and lead market very much in the short term as producers and consumers hold large amounts of inventories.

The market which is very much affected is the silver market as it is a small market compared to the supply shortfall, already running on low inventory and very high short positions. Yet, the most important is, that even the commercials have a strong bias for ample supply just when supply shrinks dramatically from virtually one day to another.

This supply crunch can be very severe and will take many traders completely by surprise. Up to 30 % of the silver supply can fallout from the market, which adds up to 200-300 mill oz. The implications are a huge price increase as we have seen it in 1998.

The 1998 silver rally has been credited to Warren Buffett, but we think that the above market fundamentals have contributed very much to the price increase. This time, the situation is even more dramatically as zinc and lead prices are even lower than in 1998. Our silver price target for end of 2001 is USD 7 per oz and USD 10 per oz for spring 2002. At the end of 2002 we will see some decline of the silver price as zinc production once again increases.

We recommend primary silver companies Silver Standard Resources (SSO in Vancouver; SSRI at Nasdaq), Pan American Silver (PAA in Toronto, PAAS in US) and First Silver Reserve (FSR in Vancouver ) as these companies have the highest leverage towards the silver price.

I look forward to receiving your comments and good luck for your investment.

Dr. Heinrich Leopold

hgleopold@yahoo.com

www.globalfuturenews.com

29 September 2001

Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.